M&T Bank Corporation

Please stand by, your program is about to begin. Welcome to the M&T Bank third quarter 2025 earnings conference call. All lines have been placed in a listen only mode and the floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press star then the number one on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star two. When posing your question, we do ask that you please pick up your handset to allow for optimal sound quality. Lastly, if you should require operator assistance, please press star zero. Please be advised that today's conference is being recorded. I would now like to turn the conference over to Steve Wendelbo, Senior Vice President, Investor Relations. Please go ahead, sir.

Thank you, Katie, and good morning. I'd like to thank everyone for participating in M&T's Bank's Third Quarter 2025 Earnings Conference Call. If you have not read the earnings release we issued this morning, you may access it along with the financial tables and schedules by going to our investor relations website at ir.mtb.com. Also, before we start, I'd like to mention that today's presentation may contain forward-looking information. Cautionary statements about this information are included in today's earnings release materials and in the investor presentation as well as our SEC filings and other investor materials. Presentation also includes non-GAAP financial measures as identified in the earnings release and investor presentation. The appropriate reconciliations to GAAP are included in the appendix. Joining me on the call this morning is M&T's Senior Executive Vice President and CFO, Darryl Beibel. Now I'd like to turn the call over to Darryl.

Thank you, Steve, and good morning, everyone. M&T continues to serve as a trusted partner for our customers and communities, bringing together people, capital, and ideas to make a difference. Earlier this quarter, we released our 2024 Sustainability Report, which highlights our community impact and the progress we've made towards meeting our sustainability goals. Highlights include $5 billion in sustainable lending and investments, and over $58 million contributed to nonprofits through corporate giving and the M&T Charitable Foundation. We are also proud to share that M&T is now the top SBA lender across our footprint by total volume as of the end of the SBA fiscal year, September 30th. Our small business enterprise continues to be an important component of our support for entrepreneurs and local economies. Turning to slide four, our businesses and leaders notably our women in leadership continue to receive accolades from the industry, including recognition of our Wilmington trust team and individual recognition for leaders across the bank. Turn to slide six, which shows the results for the third quarter. Our third quarter results reflect M&T's continued momentum with several successes to highlight. We produced strong returns with operating ROTA and ROTCE of 1.56% and 17.13%. Our net interest margin expanded to 3.68%, demonstrating our relatively neutral asset sensitivity, well-controlled deposit and funding costs, and the continued benefit of fixed-rate asset repricing. Strong fee income performance we have seen throughout the year continued, with fee income excluding notable items reaching a record level. revenues grew more than expenses, resulting in our third quarter efficiency ratio of 53.6%. Asset quality continues to improve with a $584 million or 7% reduction in commercialized criticized balances and $61 million or 4% reduction in non-accrual loans. We increased our quarterly dividend per share by 11% to $1.50, and executed a $409 million in share repurchases are also growing tangible book value per share by 3%. Now, let's look at the specifics for the third quarter. Diluted gap earnings per share were $4.82, up from $4.24 in the prior quarter. Net income was $792 million compared to $716 million in the linked quarter. M&T's third quarter results produced an ROA and ROCE of 1.49% and 11.45% respectively. The third quarter included a notable fee item of $28 million related to the distribution of an earn-out payment to M&T associated with a 2023 sale of our CIT business, adding 14 cents to EPS. Slide 7 includes supplemental reporting of M&T's results on a net operating or tangible basis. M&T's net operating income was $798 million compared to $724 million in the linked quarter. Diluted net operating earnings per share were $4.87, up from $4.28 in the prior quarter. Next, we look a little deeper into the underlying trends that generated our third quarter results. Please turn to slide 8. Taxable equivalent net interest income was $1.77 billion, an increase of $51 million, or 3%, from the linked quarter. The net interest margin was 3.68%, an increase of six basis points from the prior quarter. This improvement was driven by a positive four basis points related to the prior quarter catch-up premium amortization on certain securities, positive three basis points from higher asset liability spread, mostly from continued fixed asset repricing, partially offset by lower contribution of net free funds. Turn to slide 10 to talk about average loans. Average loans and leases increased $1.1 billion to $136.5 billion. Higher commercial, residential mortgage, and consumer loans were partially offset by a decline in CRE balances. Commercial loans increased $0.7 billion to $61.7 billion aided by growth in our corporate and institutional fund banking and loans to REITs. CRE loans declined 4% to $24.3 billion reflecting the full quarter impact of last quarter's loan sale and continued payoffs and paydowns. Residential mortgage loans increased 3% to $24.4 billion. Consumer loans grew 3% to $26.1 billion reflecting increases in recreational finance and HELOC, where our auto loans were largely stable from the second quarter. Loan yields increased three basis points to 6.14%, aided by continued fixed rate loan repricing, including a reduction in the negative carry on our interest rate swaps at sequentially higher non-accrual interest. Turning to slide 11, our liquidity remains strong. At the end of the third quarter, investment securities and cash held at the Fed totaled $53.6 billion, representing 25% in total assets. Average investment securities increased $1.3 billion to $36.6 billion. In the third quarter, we purchased a total of $3.1 billion in securities with an average yield of 5.2%. The yield on the investment securities increased to $4.2 three and a half years, and the unrealized pre-tax gain on available for sale portfolio was $163 million, or eight basis points to ET1 benefit if included in regulatory capital. While not subject to the LCR requirements, M&T estimates that its LCR on September 30th was 108%, exceeding the regulatory minimum standards that would be applicable if we were a Category 3 institution. Turning to slide 12. Average total deposits declined $0.7 billion to $162.7 billion. Non-interest-bearing deposits declined $1.1 billion to $44 billion, mostly from lower commercial non-interest-bearing deposits related to a single customer client. We continue to consider the entirety of the customer relationships as we assess our overall deposit funding mix. Interest-bearing deposits increased $0.4 billion to $118.7 billion, driven by growth in commercial and business banking, offset by the decline in consumer and institutional deposits. Interest-bearing deposit costs decreased two basis points to 2.36%, aided by lower retail prime time deposit costs and lower interest checking costs across other business lines. Continuing on slide 13, non-interest income was $752 million compared to $683 million in the linked quarter. We saw continued strength across all fee income categories. Mortgage banking revenues were $147 million, up from $130 million in the second quarter. Residential mortgage revenues increased $11 million sequentially to $108 million from higher servicing fee income. Commercial mortgage banking increased $6 million to $39 million. Trust income was relatively unchanged at $181 million as the prior quarter seasonal tax preparation fees were largely offset by growth in wealth management and fee income. Trading in FX increased $6 million to $18 million from higher commercial customer swap activity. Other revenues from operations increased $39 million to $230 million. reflecting $28 million distribution of an earn-out payment, $20 million pay-view distribution, and the gain on the sale of equipment leases. These items were partially offset by $25 million in notable items in the prior quarter. Turning to slide 14, non-interest expenses for the quarter were $1.36 billion, increased to $27 million from the prior quarter. Salaries and benefits increased $20 million to $833 million, reflecting one additional working day and higher severance-related expense, which increased $17 million sequentially. FDIC expense decreased $9 million to $13 million, mostly related to the reduction in estimated special assessment expense. Other costs of operations increased $23 million to $136 million, reflecting higher expense associated with the supplemental Executive Retirement Savings Plan due to market performance and the impairment of renewable energy tax credit investment. The efficiency ratio was 53.6% compared to 55.2% in the linked quarter. Next on slide 15 for credit. Net charge-offs for the quarter were 146 million, or 42 basis points, increasing from 32 basis points in the linked quarter. The increase in net charge-offs reflects the resolution of several previously identified C&I credits, the two largest of which totaled $49 million. CRE losses remain muted in the third quarter. Non-accrual loans decreased by $61 million. The non-accrual ratio decreased six basis points to 1.1%, driven largely by payoffs, paydowns, charge-offs of commercial and CRE non-accrual loans. In the third quarter, we recorded a provision for credit losses of $125 million compared to net charge-offs of $146 million. Included in the provision expense is a $15 million provision for unfunded commitments related to the letter of credit to a commercial customer. The allowance for loan loss as a percent of total loans decreased three basis points to 1.58%, reflecting lower criticized loans. Please turn to slide 16. The level of criticized loans was $7.8 billion compared to $8.4 billion at the end of June. The improvement from the linked quarter was largely driven by $671 million decline in CRE criticized balances. The decline in CRE criticized balances was broadly based with lower criticized balances across nearly all property types. Turning to slide 19 for capital, M&T CET1 ratio was an estimated 10.99% unchanged from the second quarter. The stable CET1 ratio reflects capital distributions, including $409 million in share repurchases offset by continued strong capital generation. In the third quarter, we also increased our quarterly dividend by 11% to $1.50. The AOCI impact on the CET1 ratio from available pension-related components combined would be approximately 13 basis points if included in regulatory capital. Now turning to the slide for the outlook. First, let's begin with the economic backdrop. The economy continues to hold up well despite ongoing concerns and uncertainty regarding tariffs and other policies. The passage and signing of the One Big Beautiful Bill Act into law removed one source of uncertainty and also gave businesses more incentive to invest in new capital. The economy bounced back in the second quarter after having contracted in the first. Consumer spending proved resilient despite tariff impacts. Businesses continued engaging in CapEx, though it was heavily in tech, software, and transportation equipment, while spending on new buildings remained in decline. Although overall economic activity was resilient, We remain attuned to the risk of the slowdown in coming quarters due to the weakening labor market. The possibility of declining jobs or the rise in the unemployment rate would likely cause weaknesses in consumer spending and possibly business capex too. We continue to monitor the possibility of a prolonged government shutdown and the potential impact on our customers, communities, and broader economy. We remain well positioned for a dynamic economic environment with a strong liquidity, strong capital generation, and a CET1 ratio of nearly 11%. Now turning to Outlook. We have three quarters of the year complete. We will focus on the Outlook on the fourth quarter. We expect taxable equivalent NII of approximately $1.8 billion, which implies full-year NII, excluding notable items to be at the low end of the $7 billion. to $7.15 billion range in line with the outlook we discussed in September. Fourth quarter net interest margin is expected to be approximately 3.7%. Our forecast reflects two additional rate cuts in the fourth quarter. We expect continued long growth and average total loans of $137 to $138 billion with growth in CNI, residential mortgage, and consumer and a moderating pace in CRE decline. Average deposits are expected to be 163 to 164 billion. Our outlook for the fourth quarter non-interest income was 670 to 690 million, reflecting continued strength in mortgage, trust, service charges, and commercial services. We expect other revenues from operations to revert toward more normalized levels. This would imply full-year non-interest income excluding notable items well above the top end of our prior range of $2.5 to $2.6 billion. Fourth quarter expenses, including intangible amortization, are expected to be $1.35 to $1.37 billion. This would imply a full year expense in the top half of our prior outlook of $5.4 to $5.5 billion. This is being driven by an increase in professional services. Net charge-offs for the fourth quarter are expected to be 40 to 50 basis points with a full year net charge-offs of less than 40 basis points. Our outlook for the fourth quarter tax rate is 23.5 to 24%. We plan to operate with a CET1 ratio in the 10.75 to 11% range for the remainder of the year. We will be opportunistic with share repurchases. and asset quality trends. As shown on slide 21, we remain committed to our four priorities, including growing our New England and Long Island markets, optimizing our resources through simplification, making our systems resilient and scalable, and continuing to scale and develop our risk management capabilities. To conclude on slide 22, our results underscore an optimistic investment thesis. M&T has always been a purpose-driven organization with a successful business model that benefits all stakeholders, including shareholders. We have a long track record of credit outperforming through all economic cycles while growing within the markets we serve. We remain focused on shareholder returns and consistent dividend growth. Finally, we are disciplined at briefly review the instructions.